Types of Instruments Used for Raising of Funds by Pfc in the Domestic Market
DATA ANALYSIS & DISCUSSION Types of Instruments used for raising of funds by PFC in the Domestic Market The gestation period for a thermal and hydro power projects is 3 – 4 years and 4 – 5 years respectively. The payback period for power projects in India is b/w 12 to 18yrs; hence, it need long term loans to set up the projects. PFC resorts to short term borrowings at times to fill-up the gaps b/w disbursement and long term borrowings due to time lag and to give working capital loans to borrowers. 2.1 Sources of Rupee Borrowing(i) Taxable BondsA debt security whose return to the investor is subject to income tax.Major source of funds:-The target investors are banks, FIs, Mutual Funds, PF and HNIs, Less regulatory requirements, less costly, lesser time requiredTax Free BondsInterest payments are not subject to income tax. Lower coupons than corporate bonds. The Govt. of India has recently allowed IFC to issue tax-free bonds.Infrastructure BondsIssued by IFC to finance infrastructure projects of public interest. Perpetual BondsBond with no maturity date. not redeemable but pay a steady stream of interest forever. Zero Coupon BondsThe diff. b/w issue price (issued at discounted price) and redeemable price (face value) itself acts as interest to holders.
Medium Term Loans from Banks/FIs- Maturity -less than 3 yearsCommercial Paper (CP)A money market security issued by large banks and corp’s.Used to manage working capital. As a relatively low risk option, commercial paper returns are not large. MIBOR linked loans (Mumbai Inter – Bank Offered Rate) / Short Term Loans from Banks with EMI or bullet repaymentMIBOR is the average rate of the call money transactions b/w 22 prominent players in the market. Reuters calculates the rate every evening. The rates on these loans are reset every day in tune with the ruling MIBOR rates.FCNR (B) loans (Foreign Currency Non – Resident)FCNR (B) loans are a low cost, short-term to medium term funding source available to Indian Corporate. Banks provide foreign currency denominated loans to their customers from the resources mobilized under the FCNR (B) scheme.3.0 Sources of Foreign Currency Borrowing 3.1 External Commercial Borrowings (ECB)In the international market the ECB is done through bonds and syndicated loans. Benefits of ECBs are:1)It provides the foreign currency funds, which may not be available in India2)Cheaper as compared to the cost of rupee funds3)Availability of the funds from the International Market is huge as compared to domestic market Syndicated LoanA large loan in which a group of banks work together to provide funds.Maturity b/w 5 to 10 years ,interest rate reset every 3-6 with ref. to LIBOR.